Stagnant Pay at Small Businesses for 2 Decades

Date: April 07, 2015

Output per worker has skyrocketed over the last 25 years, but wages have remained flat. Where are the cash gains going?

Wages at small businesses have been flat for the last 25 years, even though worker productivity has increased 60 percent over the same period, Small Business Trends reports. While cash from higher productivity has not directly translated into raises for workers, small business owners are placing the gains elsewhere: rising worker benefits and pensions.

“Some economists believe that rising benefits spending at small businesses has sucked up the entire rise in compensation resulting from increased worker productivity over the past two decades,” Scott Shane, professor of entrepreneurial studies at Case Western Reserve University, says on Small Business Trends. “As a result, the total compensation of small business workers has risen, but their wages have remained flat.” 

Bureau of Labor Statistics figures and data from the Internal Revenue Service show that average hourly wages at small businesses (establishments with one to 99 workers) increased 0.9 percent in real terms, as opposed to the 60 percent jump in output per worker between 1990 and 2012. 

More productivity traditionally means higher wages, but all compensation isn’t cash. Compensation includes benefits such as health insurance and retirement plans, and businesses can choose whether to allocate compensation increases in wages or benefits. 

The amount that small businesses spent on employee retirement benefits between 1990 and 2013 increased by 64 percent, adjusted for inflation, according to Small Business Trends. For employee health benefits, small business expenses increased by 68 percent in real terms between 1991 and 2013. 

According to NFIB’s Small Business Economic Trends report, 4 percent of small business owners surveyed reduced worker compensation in February and 26 percent reported raising compensation. “This should begin to show up in wage growth, although rising benefits offset potential increases in take-home pay,” said Bill Dunkelberg, NFIB’s chief economist, in the February report

Source: Small Business Trends

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